We expect that telephony service provision will go through a period of fragmentation as new players enter the market providing bypass services that compete on price. This sector will grow and then decline as price becomes less of an issue and calls begin to be charged by subscription. Some bypass operators may be able to continue by reselling services or bundling services with non-telecommunications services such as power.
This period of fragmentation will be followed by consolidation as the volume of IP based traffic grows, as call related charges for basic telephony disappear and the pressure for simplification and combination takes over. Figure 4 shows these developments.
Figure 4: Voice service provision 
It should be noted that this figure is not indicating the technology used. For example changes from circuit switching to ATM or IP will take place within the services provided by the telcos.
Public telephony based on E.164 numbering is universal. Although many people consider numbers to be less memorable and user friendly than Internet names, they have the advantage of being used across all languages, alphabets and cultures. We think that E.164 numbering will continue as the basis for any-any public telephony for the indefinite future. In other words we think that for the foreseeable future it is unlikely that telephony users will cease to have E.164 numbers.
We think that Internet named telephony will grow rapidly as a service for informal closed user groups, but that the any-any capability that would make it a public service will not develop until the second half of the decade because of addressing and standards issues.
In the long term we think that public telephony and Internet named telephony will exist in parallel.
Terminals
Currently almost all the residential market for telephony terminals is a combination of analogue wired telephones and cordless telephones. VoIP is supported only from PCs where users have special software and use a headset.
As VoIP develops, we expect that PCs will be fitted with conventional style handsets. This will either be through the addition of sockets for analogue telephones or through new phones with USB interfaces. We think that USB handsets with matching non standard software in the PC are the more likely solution. These development may coincide with the introduction of better support for VoIP in Windows.
The next development will be the introduction of a standard self standing IP based telephone using either Ethernet or USB as the interface. This development will be driven by the move towards an integrated digital home system and the introduction of new network termination points for both public and Internet named telephony. This development will occur later than the USB handsets for PCs because it is more dependent on standards. Figure 5 shows these developments.
Access
Nearly all residential users have analogue access lines; few have ISDN. BT is wholesaling ADSL access to its own ISP (BTInternet) and also to other ISPs.
We expect that the prices for ADSL access will fall to below £20/month within two years and that user demand will be high. We are not so bullish about local loop unbundling which is starting very slowly and where the experience from the USA is that there can be significant operational difficulties. This may mean that BT operates most of the ADSL and resells the access to other ISPs.
The next step for residential users is likely to be the presentation of services via a single standardised IP based network termination point (Ethernet and USB seem to be candidates at present) The introduction of this interface will contribute to growth in IP based telephones. We expect that this new form of network termination point will start around 2005. We think that the development of standards will be the determining factor in the timescale. Figure 6 summarises these developments.
Figure 6: Access developments 
There are three main types of packet network used for voice:
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Public Internet backbones.
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Managed IP networks
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PSTN replacement networks.
The same underlying transmission system can support all three network types and some operators are running or planning to run all three types with partitioning based on MPLS.
The two major technological developments will be:
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Improved quality of service in managed IP networks through further development and implementation of MPLS and the introduction of special quality control protocols that give voice packets priority over other traffic.
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Further refinement and implementation of SIP, which is expected to be the main call control protocol for voice and other media services.
We think that these networks will develop in the following ways:
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The public Internet as a “best efforts” network will not change much.
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Operators of Internet backbones will add QoS features as soon as practicable in order to be able to increase their revenue by offering service level agreements. Improved QoS be introduced from 2003
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Network interconnection at the call control level using SIP over IP will not start before about 2005 because of the need for further standardisation.
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Nearly all procurement of new PSTN capacity will use PSTN replacement networks based largely or wholly on ATM. For straightforward PSTN applications, operators will not be in a hurry to replace their local circuit switches, which can continue to be used at marginal cost. Where customers want advanced services, they will use an overlay of managed IP networks.
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In the very long term, the managed IP and PSTN replacement networks may merge and SIP may become the dominant protocol for call control.
We think that BT and the cable operators will start to offer VoIP services from their managed IP networks to the SME and residential markets starting from 2001/2. They will address the SME market with broadband and VPN services delivered over ADSL and VoDSL. These services will include voice but initially may not have all the features required for PSTN substitution.
For PSTN replacement, we think that BT and the cable operators will introduce an overlay of packet based technology in very limited areas, starting from around 2004. This overlay will grow gradually according to need and some circuit switches may still be in use after 2010.
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